Revenge Spending

Revenge spending is a psychological phenomenon whereby consumers buy more luxury goods and services than usual after a restricted phase arising due to an unexpected adverse economic event such as a pandemic. As a result, consumers aggressively shop and spend the saved money to compensate for the lost time.

Revenge spending can be influenced by various factors, including suppressed desires that resurface during a period of restriction, the desire to regain control, and the motivation to display wealth and social status. Additionally, the influence of peers and the tendency for social comparison can contribute to people's desire to overspend.

• Revenge spending refers to a psychological concept where individuals or communities increase their spending on luxury or discretionary goods and services after a period of restraint or economic uncertainty like a pandemic.
• The positive outcome of it is the accelerated economy after a persistent economic downturn, thus resulting in economic growth and recovery through increased demand for retail goods or services.
• However, it results in inflationary pressure, financial distress, wealth gap, unsustainable consumption, and negligence of essential expenses.
•  It can be avoided using a 30-day rule, savings rule of thumb, understanding and channeling emotions, financial planning and budgeting, and self-control.

Revenge spending is a term used to describe consumers' binge buying, where individuals engage in excessive or extravagant spending as a form of retaliation or compensation after a period of deprivation or restraint. It may occur in response to temporary restrictions or economic downturns, but it is not a sustainable or long-term spending pattern for most individuals.

Revenge spending in China showcases the phenomenon of consumers engaging in excessive or extravagant buying as a form of retaliation or compensation after a period of deprivation or restraint, often triggered by temporary restrictions or economic downturns. It gained recognition, particularly following events such as the SARS epidemic in 2003 or government-mandated frugality campaigns. During these times, people saved money and curtailed their spending due to uncertain economic conditions or regulatory measures.

However, once circumstances improved or limitations were lifted, people embarked on extravagant shopping sprees to compensate for the lost time and savor the luxuries they had been deprived of.

Such consumer behavior is often observed following a crisis, such as a recession or a pandemic, when people feel a pent-up demand and a desire to compensate for the lost time. This phenomenon, rooted in revenge spending psychology, reflects consumers' psychological satisfaction from indulging in excessive or extravagant purchases.

#1 - Positive Consequences

A significant plus of revenge spending is it temporarily boosts the economy by increasing consumer demand, particularly in the luxury and retail sectors. Thus, it leads to overall economic growth and recovery.

#2 - Negative Consequences

The negative consequences of revenge spending, however, include:

1. Unsustainable Consumption: Excessive consumption is not environmentally sustainable in the long run since the increased demand for luxury items can lead to resource depletion, waste generation, and negative environmental impacts.
2. Financial Burden: The consumers may accumulate debt or deplete their savings by overspending on luxury items, leading to potential financial stress and reduced financial freedom in the future.
3. Inflationary Pressure: A sudden surge in spending can drive up prices for goods and services due to excessive demand and limited supply, exerting inflationary pressures.
4. Neglected Essential Expenses: These can lead to a diversion of financial resources from critical necessities such as healthcare, education, or emergency savings, posing a risk to personal well-being and overall financial stability.
5. Wealth Gap: Since only the rich can overspend on luxury items, such spending causes income inequality and a wealth gap. In contrast, the deprived communities may continue to face financial hardships due to job losses or reduced income during the crisis.
6. Negative Psychological Impact: Relying on material possessions to fill emotional voids such as stress, frustration, or a desire for status can lead to a cycle of dependency and dissatisfaction, ultimately impacting the mental well-being of individuals.

Let us look at some examples to understand the concept better:

Example #1

When most highly paid individuals lost their jobs during the recession, they faced a cash crunch and limited their spending to essential goods or services. Then, as the economy corrected and the unemployment level reduced, people earned again but spent more on luxury items.

The surge in spending on luxury items after financial restraint can be attributed to revenge spending psychology, where individuals seek to regain control and find emotional satisfaction by indulging in extravagant purchases.

Example #2

The phenomenon of revenge spending after Covid-19 emerged as a global trend, reflecting the pent-up demand and desire for indulgence accumulated during the prolonged lockdowns and restrictions imposed throughout the pandemic. In a remarkable display of this behavior, people worldwide flocked to markets with an aggressive appetite for purchasing clothes, diamond jewelry, handbags, and footwear.

According to a report by CNN, lifting mask and vaccine mandates prompted consumers to exhibit extravagant spending habits, prioritizing purchases over travel and other leisure experiences. This surge in this behavior significantly impacted the stock prices of airline companies, travel companies, cruise lines, and hotels in 2022.

For example, despite a 9% decline in the S&P 500, SonicShares' TRYP (a travel company's stock) witnessed a 6% increase. Similarly, the shares of other prominent travel and leisure industry players, including Marriott, United, American, Wyndham, Hilton, SeaWorld, Norwegian, and Royal Caribbean, all displayed an upward trend.

Revenge spending often becomes a habit without the individuals knowing they have become addicted to unnecessary shopping. To effectively curb such a habit, individuals must cultivate self-awareness, exercise discipline, practice patience, and be willing to confront the situation head-on. 

Here are some steps to prevent oneself from engaging in this spending:

#1- Acknowledge Self-Emotions: People must take the time to recognize and understand the emotions that trigger impulsive spending, including stress, anger, boredom, or other negative feelings. It will help to address and channel these emotions in the right direction.

#2- Automate Investments and Savings: It is better to automatically deduct the investments and savings directly from the bank account once the paycheck drops. It will reduce your purchasing power and thus curtail overspending. But, again, follow the savings rule of thumb for better money management.

#3- Set Priorities and Delay Gratification: This strategy encourages one to:

• Take time.
• Apply a 30-day rule, I.e.
• Wait 30 days to prioritize before spending a penny on unnecessary items.

It helps one plan and save for future needs rather than spending on short-term pleasures.

#4- Establish Financial Goals: One must set long-term financial goals to define your goals. It enables one to prioritize one's spending and avoid impulsive purchases.

#5- Create a Budget: One should chalk a realistic budget considering income, expenses, and savings objectives. A budget helps one allocate resources effectively and prevents unnecessary spending.

#6- Find Healthier Coping Mechanisms: People must explore alternative activities that provide stress relief and emotional fulfillment, such as engaging in hobbies, exercising, spending time with loved ones, or seeking support from a therapist or support group.

#7- Seek Professional Help: If it becomes challenging to control revenge spending despite one's best efforts, one must talk to a financial advisor, therapist, or counselor according to the situation.

This has been a guide to What Is Revenge Spending. Here we explain its consequences along with examples and ways to curb it. You may learn more about valuations from the following articles – 

• Consumer Spending
• Deficit Spending
• Flexible Spending Account